Wearables Update: the Apple Watch

Tom Benton

The tech world has been waiting in anticipation the last few weeks to find out what Apple’s latest offerings will be. While everyone expected a new iPhone model (and got two actually – the iPhone 6 and a larger screen version, the iPhone 6 Plus) and the next version of the iOS operating system (iOS 8), the key question was whether the long-rumored iWatch would be presented at the fall product announcement event on 9/9.

Apple did announce their new Watch offering at the event, and found ways to differentiate their offering through providing various editions for specific markets/purposes, and providing ways to use watch functionality beyond telling time without a phone connection, such as heartrate monitoring and ability to respond to gestures, etc. Also, the Apple Watch will leverage Apple’s new Apple Pay service to allow wearers to pay for items at such retailers as Whole Foods and Macy’s.

However, the device is not yet available (probably shipping early next year) and will be at a price point higher than competing devices – starting at $349. Apple device users expect a premium price, but may be confused by the three “editions” of the watch: a standard smartwatch (“Apple Watch”), a rugged sport version (“Apple Watch Sport”) and a fancier fashion-focused edition (“Apple Watch Edition”). Also, by not shipping until next year, Apple may lose significant ground to other smartwatch offerings – the Pebble, which has been generally available for over a year, Samsung’s many offerings and new Android-wear devices such as the Moto 360 which became available late last week and sold out in a few hours.

So what will the impact be on insurers? In my report on wearables, I mentioned that smartwatches can be used for customer engagement and collecting information about the wearer’s activity, useful for determining their level of fitness and general health. Apple’s Watch offerings will fuel the growing consumer interest in wearables, leading to a critical mass of users who will demand they are supported by all businesses they work for and purchase from, including insurers. Wearables are becoming another important communication and engagement channel for insurers, and need to be considered in digital and customer experience strategies as well as considered in IT application and architecture roadmaps. As current systems struggle to support mobile channels, future systems should be planned with wearables taken into consideration.

By the way, after Apple’s announcement I asked around to various demographic groups at the Insurance CIO Summit, which I am attending this week in Atlanta. Few said they would be interested in buying the Apple Watch – some were not yet interested in wearables, others felt there were other offerings that were available that they would consider and others took more of a “wait and see” approach. One interesting response was from a younger Gen-Xer who continues to wear a fashion watch, and said she would not be interested in the Apple Watch because she expected it not to look as fashionable (for instance, she found my Pebble “unattractive”). Clearly people choose what they wear on their wrists for many purposes, so Apple’s approach of multiple offerings may prove to be a good strategy. However, they will need to provide relevant apps and educate consumers on why their smartwatch provides capabilities that wearers can’t live without. (Is my Pebble watch really that unattractive? Hmm.)

Core Systems Selections… It Isn’t Like Riding a Bike!

Rob McIsaac

Or, in retrospect, maybe it is. The old adage that “we never forget” key life skills from an earlier time may have some instructive elements for CIO’s to be aware of. And to beware of.

I recently really did return to riding a bike and, while there haven’t been any medical emergencies, it hasn’t exactly been what I’d call “smooth”. While I understand the concepts and the physics, the act of putting all the pieces together into a smooth and fluid motion that is safe requires more than just fond memories of an earlier time. It requires practice and a surprisingly high level of dedicated time to get it right. A success metric built around the phrase “didn’t crash” seems to be dubious at best.

My wife recently took up the piano again with very similar results. Knowing where the keys are is helpful but not enough to make visions of Carnegie Hall dance in anyone’s head.

All of which, of course, then begs the question about how an insurance carrier can best go about selecting … and hopefully implementing … a new core system. The reality is that for many carriers this is something that they have very limited recent practical experience with, even if they have some vague recollection of the key steps. There’s no muscle memory that they can rely on or institutional capacity that has been recently exercised in order for them to have a leverage able asset. Once again, “didn’t crash” is a pretty low success bar to achieve. For many carriers, making these kinds of investment decisions are only pursued a few times in the course of a generation, so thinking that there’d be notable carryover from one experience to another would really stretch credibility.

Beyond that lack of recent experience, the changes in technology from one era to another can also add daunting new level of complexity to the issue. I also learned this the hard way when rekindling the interest in biking. It turned out that all of my experiences were rooted in the 1980’s and 1990’s; the technology has changed dramatically since then, creating a multi-dimensional learning event. Unless my goal was to optimize around solutions that are 30 years old, thinking differently and being open to outside influences proved to be pretty important elements for building to ultimate success.

For carrier CIO’s, finding a way to gain both organizational muscle and institutional knowledge fast is also a critical factor for success. As increasing numbers if carriers across a range of lines of business are finding, a system strategy the addresses replacement of core capabilities is a logical enabler for future success. It isn’t just for P&C anymore.

To that end, using a process like what Novarica offers our Advisory clients is a way to both speed up the selection process and to reduce the risks associated with these initiatives. The experiences built up over many efforts across multiple carriers helps to position these assets to be immediately leveraged for success. The idea of “didn’t forget” something is rather different from “didn’t stop doing”.

As exciting as “On the Job Training” can be, the IT equivalent of open heart surgery is likely not a practice with an appropriate risk / reward profile. Happy trails!

The Problem With Differentiation

Tom Benton

In reading recent articles on innovation, there is a definite focus on differentiation. Various elements to innovation are often mentioned: agility, culture, transformation, customer-focus, data-centered, etc. These are often directed at how a company can develop new innovative products or provide new innovative services or new innovative delivery channels. Carriers are encouraged to use big data to learn more about their customers (policyholders and/or producers), to use the cloud and mobile to provide ease of doing business or to modernize their systems to provide customers with faster better service through internal process efficiency. The focus of these efforts is to be different, faster, better than other providers.

Now, differentiation can be a very good strategy. Apple has become the number one brand and the company of the highest net value (or near it) by following a corporate-wide culture of “Think Different”. Within the insurance world, companies like MetLife, Geico and Progressive have use innovative marketing, branding and technology to their advantage through differentiation. However, there’s a problem with focusing your strategy on differentiation. To be successful at differentiation, a company has to have a corporate culture that supports it – a culture of listening for ideas, design thinking, and tolerance for failures. It has to support its innovation efforts with talented staff, properly funded technology investments and simplified agile processes.

Developing this kind of culture and environment for innovation is relatively easy for start-up companies, but more difficult for the established players in a market, especially if they are risk averse, have a culture of failure being fatal and established technology that is difficult to maintain, upgrade and replace. Creating the proper environment for innovation takes either radical change, or time to evolve the culture and environment. Leaders in established companies often are not willing to make the radical changes necessary, and evolving the culture takes time while other companies get further ahead in the race for innovation and differentiation.

The real problem with differentiation is that unless you are prepared to differentiate now, the innovations will become accepted and you will need to follow a course of imitation. In a recent HBR article, Freek Vermeulen. Associate Professor of Strategy and Entrepreneurship at the London Business School, talks about how customers view differentiation. In some industries, the products and services are fundamentally not that different. He suggests that customers make buying decisions based less on what is different and more on social context – they buy a particular product or service because their social network and relationships suggest it is known and an acceptable choice.

The implication for insurance carriers is that differentiation is a good strategy, but eventually the innovation produced is imitated and becomes a standard offering. A strategy of imitation will eventually be required, and when products look the same to the customer, they will choose based on their social networks and relationships. An alternate focus for innovation by differentiation, then, might be to follow a strategy of imitation and socialization. For example:

  • Instead of using big data to understand customer behavior, shape the behavior through social interaction. While streamlining customer interaction through the cloud and mobile strategies, find ways to build relationships where customers will interact with you and others to build trust and preferences.
  • While modernizing systems to provide internal process efficiencies, put internal social networking into place to build a culture and skills that can be used to leverage external social interactions.
  • Win customers not by being the coolest or latest, but by being the most connected and trusted.

The best part is that a strategy of imitation and socialization can be done while updating technology to do what others are doing, and it builds the kind of culture that can transform into one that is innovative and possibly differentiated in the end. It doesn’t take a radical change or large technology investments that work against the clock of the wave of technical change.

Small commercial insurance moves online…because it’s too low margin to do offline?

Matthew Josefowicz

There was an interesting article today on PC360 about the state of small business online. The article echoed many of the themes and issues we raised in our report last summer, Direct Online Small Commercial Insurance.

The article had some interesting quotes from direct players like Insureon and Hiscox, both of which were featured in our report. But it also contained this quote, which raises an issue we didn’t mention last summer:

“The Hartford is committed to a multichannel distribution model in its small commercial business and independent agents are at the center of the distribution strategy,” says Ray Sprague, senior vice president of small commercial insurance at The Hartford, but adds that the vast majority of small businesses operating in the U.S. today are often too small for many independent agents to profitably acquire and serve (emphasis added).

This resonates with several comments that small commercial CIOs made at a meeting I attended last week. There’s a big SOHO small commercial market that’s too small for most agents to care about. I believe insurers will increasingly look to the direct channel to be able to meet this market demand.

Related research and blog posts:

Accelerating Pace of Change Requires New IT Planning Paradigms

Rob McIsaac

One of the realities of IT in any industry is that “truth” related to technology is a fleeting thing. The best system or technology to deploy can evolve with surprising speed, making it important for CIO’s and their organizations to determine with some precision what a roadmap toward a future state should look like. Increasingly, CIO’s and their team should carefully consider just how long they think they will be in that future state too. This has implications for both the technologies to be deployed and the financial mechanics used to pay for them. Missing either of these key points can create the IT equivalent of “The Hangover”. Unfortunately, aspirin alone won’t cure this one!

There are parallels in other parts of our personal and professional lives. As a frugal minded sort, my typical approach to cars was to buy them and drive them long after the warranty and that new-car smell were gone. While the shapes and sizes until recently changed like fashion statements, the essential technology remained pretty stable.  Parts evolving slowly over time and had surprisingly long useful lives. As a result, parts and skills remained in a pretty consistent supply. A few years ago I finished restoring a 30 year old BMW (ok, so being frugal has its limits) and the only limiting factors were time and money. Parts and skills could be bought, because essentially the same vehicle had been in production for nearly 15 years.

Try that trick with a new car. They are better in every way. Faster, quicker, safer, better fuel economy, less maintenance. The list is long. But the challenge is that the technology used is fleeting. A two or three year old vehicle may have technology embedded that looks nothing like what is in production now. When the parts run out, there may be no clear path forward. As a friend of mine said, “I don’t think I could afford the risk of owning a new one when the warranty runs out!”.  Relatively small parts failures could lead to catastrophic financial events.  Leasing starts to sound like a pretty decent idea; about the time problems begin to set in, give the keys back and start over again.  It is an appliance, not an investment.

That’s hardly unique to cars. Is anyone paying real money to fix an iPhone 4?  Of course not. They were the height of cool a few years ago and helped to change the world we live in. Now they are disposable.

Large flat screen TV’s are the same way.  When a circa 2008 model expired recently, it was cheaper to get a new one (that was far better) than it was to fix the old one.  Turn them and burn them when they’re done.

There’s a good chance my next car will be disposable too. I will lease it, use it for a specific period of time, then replace it on or around a known date. I won’t depreciate it, won’t fix it, won’t treasure it like a friend. I will consume it and move on.

The same should be true of future core systems at insurance carriers. The systems and their vendors will evolve quickly using the “best” available technology at a moment in time. Then they will move on. Rinse and repeat will be their model.

And while carriers have built, bought, modified and embraced systems from the 1960′s to the 2000′s (a surprising number of 40-50 year old systems run major workloads every night), that’s a model that has a foreseeable end. Anyone pining for that “state of the art 2009 platform” now?  Of course not; we would have had a challenging time describing some of the things that would be key drivers for business success five years later.  That will be even more true as we think about 2019 or 2024.

Rather than acquiring and depreciation systems for a protracted lifespan, implementing with an eye toward “replacing the replacement” appears to be a more viable and effective model. This impacts skill sets, depreciation schedules and even the future state IT discussions. It may no longer be a “buy versus build” dialogue. For the future it may be “buy versus rent”.

A variety of factors have now come together to make this a viable option. If email for large / complex / highly regulated companies can live in the cloud, a host of other things like policy administration, claims, distribution management and financials can too. Pun intended.

I never thought I’d lease a car either, but we’ve crossed a risk / return tipping point that makes that a pretty attractive option. Of course I will keep my ’84 Bimmer for fun and pleasure. Sure wish the A/C worked better, however …

 

“Permission Space” and Transformation Initiatives

Catherine Stagg-Macey

It was news to me but it turns that the world’s largest wi-fi installation is underground in London. Literally under my feet. Transport for London (TFL) has installed free wi-fi in all 137 stations on the London underground. No small feat given most of the infrastructure was built in the Victorian times.

In a recent presentation I saw by Matt Griffin, Head of Biz relationship and IT strategy at TFL, he made the point that this project was the first IT project that had a direct impact on customers. IT had been kept away from the end-customer. TFL is an engineering organization that prioritises anything engineering related over IT.

Triggered by requirements of the Olympics for station staff to better manage station access to a large number of tourists, TFL had to tackle the challenge of better intra-station communication for staff.

IT had little credibility in the business community at TFL. As Griffin put it, they had limited permission space. Clever contracting meant the burden of the financial outlay resided with the mobile network carrier. Even with this reality, TFL IT was reminded rather strongly that they would not get any money should they overrun.

The project went in on time and budget. Wi-fi capability provided much needed information to effectively manage the huge increase in passengers during the Olympics. Customer feedback to TFL was that underground journey’s were more pleasant than usual during the Olympics. That was certainly my experience too.

Learning from this experience, TFL is now working to leverage this digital capability to create extra capacity in the network without new rail or train investments. Needless to say, the business is rather charmed by this all and IT now has rather a lot of permission space to propose new investments that can support TFL.

This is a great story of permission space. As CIO, it’s important to get a good measure of the IT credibility in the business community. Large change initiatives should only be undertaken in the golden end of the permission space continuum. If you aren’t there, work on the small projects that will have visibility to the end-users and build up the reputation of a department that knows what it’s doing.

Click here for more on Novarica’s CIO Best Practices research.

Here’s the Problem… A Process Is Only As Good As Its Weakest Link!

Rob McIsaac

Recently, I decided that I needed to update my life insurance portfolio. With a range of life events taking place, and a 10 year term policy purchased in 2004 coming to a natural end, I was poised to take quick action. Suffering from mild OCD, I actually started the process a full 8 weeks before the anniversary date. Little did I know that I was dancing on a razor’s edge in terms of timing. This sort of “secret shopper” experience has been frustrating, humorous and thought provoking all at the same time. Does it really need to be this hard? If a process is only as good as its weakest link, this one sets a new standard on the low side of the scale.

In an era of instant access, and nearly instantaneous gratification, I went online to start shopping at an aggregator site. To my surprise, this was less functional than the site I recalled from 10 years ago but it did earn me a call back from a call center agent. After going through the medical questions, we landed on the need to “draw fluids”, a process that could take 2-3 weeks to complete. Given the green light, this process started. It took 3-4 weeks to actually schedule the blood draw.

Thinking the process had run amuck, I went to a second carrier directly. After completing their app online, I was called back in minutes for the medical questions. Because of how I answered one question, I was cautioned that I wouldn’t qualify for the super preferred rate and that the agent had no idea what the premium might be. The thrust of the conversation was that it would likely be around 50% more, but that this was just a SWAG. Clearly surprised that I wanted to proceed anyway (not a great trait in sales) we again marched into the need to draw fluids. A process that could take, I was assured, 2-3 weeks.

The third carrier was a traditional Agency company that I decided to test to see if the web site channel worked. Although it took several business days for someone to respond, when they did, the agent was effective and knowledgeable. She was able to share different premium scenarios and suggest which products might best fit the need. While the low end price was higher than the direct company super-preferred rate, the “likely” rate based on the medical questions was lower. And, of course, drawing blood would take several weeks.

Several interesting points in the process:

  • For all practical purposes, the questions the carriers asked were exactly the same. The only variations seemed to be in looking at my driving record (3 years or 5) and my parents issues with illness (before 60 or 65). Other than that, it was cookie cutter.
  • All three companies declined the opportunity to get medical records (fluids, EKG, chest x- ray) directly from my doctor, despite the fact that they were available as part of an annual physical done two weeks earlier. All wanted to have their own chance to stick me with needles.
  • All three carriers used the exact same service to do the fluid draw and on site visit. Some effect envy for me there, since I got a “three for one” deal on the fluids and the list time. Each carrier wanted their own EKG original so I had to sit through that multiple times, but only partially disrobe once.
  • The direct carriers are decidedly poor at staying in touch with process updates. With them it feels like I’ve fallen into an abyss. The agency carrier seems to be far more engaged through my touch point.
  • Across the board, the process seems broken … or at least archaic. I became a little worried about coverage gaps with the ’04 policy exporting, but I shouldn’t have been concerned. The old carrier indicated that it takes a calendar quarter to actually lapse the contract … whose premium would triple on the next anniversary barring action on my part.

    At a time when the balance of consumer’s financial lives is so readily available through self service and guided experience, this seems like a trip back in time to a different world. Actions are measured in weeks and quarters rather than minutes and hours. Rather than full transparency on information and pricing, the process feels both secretive and ill-informed.

    The process also seems to be intentionally inefficient. When my doctor did his version of the fluid analysis, we had results in 2-3 days. The paramedic firm used by all three carriers said it took 2-3 weeks. How could that possibly be?

    Left to a natural course, this process could run (in total) 6-10 weeks, by my estimation. At that point, I will be presented with “take it or leave it” offers from all the carriers involved. I will, of course, have a personal choice to make at that point, armed with full disclosure and valid pricing as inputs. In the end, it will have a happy outcome for some.

    This got me thinking about my own children and their Gen Y peers. They would be highly unlikely to participate in an exercise as slow and as painful as this one. Baby Boomers like me may now be closing in on purchasing their last life insurance contracts as other life events loom.

    For carriers, the time to think about the required paradigm shifts is coming quickly. Those footsteps you hear are future generations of prospects but they may be running away, rather than toward, you!

    Big data, mobile capabilities, access to a form of Telematics and other devices may all prove to be game changers sooner than we think. Remember what life was like before SmartPhone? I don’t either…

    Turning Insurance Outside-In

    Matthew Josefowicz

    Across the great formal presentations, panel discussions, and roundtables at our 7th Annual Council Meeting this week, one theme kept jumping out for me: the need for insurance to become more demand-led in market, operational, and technology strategies.

    As an industry, we have a tendency to view the world from the inside out. We need to reverse that perspective and look at the our industry and our operations from the outside in. We need to start from market and operational needs as we plan product, service, and technology strategies, rather than starting from our own understanding of capacities.

    Our keynote speaker, data and analytics expert Adam Braff, hit on this theme in his opening presentation on “Cooking with Big Data,” with the first of his 5 guidelines: “Figure out what people want to eat before you go shopping.” Too many analytics efforts start with gathering data rather than thinking about how insights might be operationalized to drive better business results. The supply of data and analytical capability is leading in too many cases, rather than the demand for insight.

    My presentation on Trends in Information Technology and Insurance focused on how changes in the ability to access, communicate, and analyze information means that buyer and distributor expectations about speed, flexibility, and even value propositions, are diverging from insurers’ own understandings of the world. The supply of risk analysis and distribution is leading in too many cases, rather than the demand for coverage.

    In our CIO panel, a common theme of the panelists from AFLAC, The Hartford, Great American, and New York Life Investment Management was re-orienting IT organizations to be more focused on the creation of business value. This involves educating IT staff about business needs and goals as well as educating business leaders about the implications of their requests. The supply (and cost) of technology is leading in too many cases, rather than the demand for capabilities.

    This will be a massive shift for the insurance industry, but one that is necessary to undertake. Access to information, communications technology, and analytical capability is democratizing the ability to price and sell risk. Insurers (and insurer operational and IT executives) that focus on the demand for coverage and capabilities will be better positioned to meet that demand. Those that don’t may soon find themselves with much less demand for what they have to offer.

    The 7th annual Novarica Insurance Technology Research Council Meeting was held in Providence RI on April 30-May 1, and was attended by more than 70 insurer CIOs and senior IT executives. A report based on the discussions at the meeting will be published shortly.

    Other recent Novarica reports on this theme include:

     

    Straight Through Chicago

    Rob McIsaac

    Last week’s LIMRA/ LOMA Retirement Conference in Chicago provided an interesting overview and update for what is happening in the industry today. Jim McCool from Charles Schwab noted the importance of having carriers move to establish trust with consumers, and the need to de-clutter and simplify products and business models. He highlighted the example of Apple as a company that has taken a potentially complex space and made it elegantly simple with a terrific user experience that inspires trust and confidence.

    This was a great build on a presentation I had an opportunity to deliver at the conference on Straight Through Processing.

    The reality in the United States is that 10,000 Baby Boomers are now reaching retirement every day, something that will persist for the foreseeable future. The opportunity for carriers to prepare for this is now. Further, with low interest rates and continued cost pressure, finding ways to reduce operational expenses while improving customer experience (for both agents and customers) is critical.

    Another reality is that customer experiences are increasing being set by companies like Apple, Facebook, Google and Amazon. They have perfected ways to make complex things simple, easy to use, innovative and “delightful” to customers. With expectations set there, business practices that are dependent on paper and rooted in the 1950′s are increasing arcane and inaccessible to agents and customers alike. The need to drive toward electronic applications and electronic signatures is crucial for carriers across lines of business. It is both a crucial step toward better customer experience now … and a precursor to bring able to deliver on meaningful mobile capabilities.

    This was an opportunity to highlight findings from a recent Electronic Signatures Executive Brief we published.

    When asked if there was a potential crisis due to aging in the producer community, the executive panelists at the conference’s main session noted that there is. Allianz, Schwab and Wells Fargo all acknowledged the problem and highlighted approaches they are taking to prepare for a new generation of advisors.

    In some places, the agent / advisor community is actually aging faster than the general population at large. This also highlights the importance of creating better and more compelling user experiences for both producers and end clients. Moving to simplify business process, allowing for the electronic execution of transactions and “going mobile” are all key to this. Carriers will continue to need to compete for advisor “mind share” which will require experiences that can be concurrently compelling to multiple generations of users. All of this, of course, ties back to the Hot Topics we see for insurers in the near future.

    The Apple analogy continues to resonate, particularly if carriers want to truly remain relevant in a highly competitive environment.

    While there are certainly complexities inherent to the life insurance, annuity and retirement plans segments of financial services, the future is clear: STP is moving from being innovative to becoming a “cost of doing business”. Hope is not a strategy and indecision is not a winning game plan.

    New Brief: Wearable Technology and Insurance

    Tom Benton

    Over the last two years, fitness tracking bands, smartwatches and Google Glass have fueled the next wave of consumer electronics:  wearable technology. Financial services firms and insurers are already starting to find innovative ways to use wearables. In my new brief, Wearable Technology and Insurance , I outline three key capabilities and some examples of how these enable innovative applications for insurers and financial services firms. 

    In some respects, “wearables” are not new – after all, the Dick Tracy comic strip introduced their iconic “wrist radio” just after World War II.  What is new is that smartphone adoption and more efficient smaller batteries are enabling new devices and applications.

    I currently have two wearables on my wrist – a fitness tracking band (the Fitbit Flex that I have been wearing since June 2013) and a smartwatch (a Pebble – I was one of the 69,000 or so who backed the project on Kickstarter back in May 2012, but I started wearing it regularly earlier this year).  I am seeing more and more people wearing these devices and with the recent introduction of Android Wear, Google’s extension to the Android operating system for wearable devices, we can expect 2014 to be the “year of the wearable”.

    As wearables gain adoption by consumers, innovative insurers will find ways to use them in engaging customers.  Others should consider how wearables will fit into mobile and customer communication strategies.  Wearables are on the way – how can you leverage them for customer interactions?  Read the brief and let me know your ideas.